DYNAMIC FUELS, LLC
(A Development Stage Company)
 FINANCIAL STATEMENTS
 SEPTEMBER 30, 2010 and 2009
 WITH
 INDEPENDENT AUDITORS REPORT




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CONTENTS
 Independent Auditors Report
    
    
    1Balance Sheets
    
    
    2Statements of Operations
    
    
    3Statements of Members Equity
    
    
    4Statements of Cash Flows
    
    
    5Notes to Financial Statements
    
    
    6




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       1




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DYNAMIC FUELS, LLC
(A Development Stage Company)
 BALANCE SHEETS
 September 30, 2010 and 2009
 2010
    
    
    2009AssetsCurrent assets:Cash
    
    $
    2,004,738
    
    
    $
    32,321,714Restricted cash
    
    
    115,829
    
    
    
    42,775,005Other receivables
    
    
    701,422
    
    
    
    Inventory
    
    
    7,086,677
    
    
    
    Prepaid expenses and other current assets
    
    
    164,961
    
    
    
    1,916,918Total current assets
    
    
    10,073,627
    
    
    
    77,013,637Property, plant and equipment, net
    
    
    144,401,235
    
    
    
    76,432,295Other
    
    
    3,402,478
    
    
    
    1,192,133Total assets
    
    $
    157,877,340
    
    
    $
    154,638,065Liabilities and Members EquityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    5,716,527
    
    
    $
    13,020,431Due to related parties
    
    
    4,611,335
    
    
    
    2,946,556Total current liabilities
    
    
    10,327,862
    
    
    
    15,966,987Asset retirement obligation
    
    
    34,720
    
    
    
    16,434Notes payable
    
    
    100,000,000
    
    
    
    100,000,000Total liabilities
    
    
    110,362,582
    
    
    
    115,983,421Commitments and contingenciesMembers equity:Syntroleum Corporation capital contributions
    
    
    34,250,000
    
    
    
    24,250,000Tyson Foods, Inc. capital contributions
    
    
    34,250,000
    
    
    
    24,250,000Deficit accumulated during the development stage
    
    
    (20,985,242
    )
    
    
    (9,845,356
    )Total members equity
    
    
    47,514,758
    
    
    
    38,654,644Total liabilities and members equity
    
    $
    157,877,340
    
    
    $
    154,638,065
   2




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DYNAMIC FUELS, LLC
(A Development Stage Company)
 STATEMENTS OF OPERATIONS
 Period fromJune 22, 2007,Date ofYear ended
    
    
    Year ended
    
    
    Inception, toSeptember 30,
    
    
    September 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010Expenses:General and administrative
    
    $
    11,822,945
    
    
    $
    5,203,283
    
    
    $
    18,808,387Depreciation and amortization
    
    
    219,338
    
    
    
    57,424
    
    
    
    277,195Total expenses
    
    
    12,042,283
    
    
    
    5,260,707
    
    
    
    19,085,582Loss from operations
    
    
    (12,042,283
    )
    
    
    (5,260,707
    )
    
    
    (19,085,582
    )Interest income (expense)
    
    
    (8,233
    )
    
    
    604,415
    
    
    
    850,487Interest rate swap valuation adjustment
    
    
    753,480
    
    
    
    (3,678,663
    )
    
    
    (2,925,184
    )Other income (expense)
    
    
    157,150
    
    
    
    17,887
    
    
    
    175,037Net loss
    
    $
    (11,139,886
    )
    
    $
    (8,317,068
    )
    
    $
    (20,985,242
    )Allocation of net loss to members:Syntroleum Corporation
    
    $
    (5,569,943
    )
    
    $
    (4,158,534
    )
    
    $
    (10,492,621
    )Tyson Foods, Inc.
    
    
    (5,569,943
    )
    
    
    (4,158,534
    )
    
    
    (10,492,621
    )$
    (11,139,886
    )
    
    $
    (8,317,068
    )
    
    $
    (20,985,242
    )
   3




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DYNAMIC FUELS, LLC
(A Development Stage Company)
 STATEMENTS OF MEMBERS EQUITY
 Period June 22, 2007 (Date of Inception) to September 30, 2010
 DeficitAccumulatedCapital Contributions
    
    
    During theSyntroleum
    
    
    Tyson
    
    
    DevelopmentCorporation
    
    
    Foods, Inc.
    
    
    Stage
    
    
    TotalBalance, June 22, 2007
(date of inception)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Cash contributions
    
    
    4,250,000
    
    
    
    4,250,000
    
    
    
    
    
    
    
    8,500,000Net loss
    
    
    
    
    
    
    
    
    
    
    (234,734
    )
    
    
    (234,734
    )Balance, September 30, 2007
    
    
    4,250,000
    
    
    
    4,250,000
    
    
    
    (234,734
    )
    
    
    8,265,266Cash contributions
    
    
    14,000,000
    
    
    
    14,000,000
    
    
    
    
    
    
    
    28,000,000Net loss
    
    
    
    
    
    
    
    
    
    
    (1,293,554
    )
    
    
    (1,293,554
    )Balance, September 30, 2008
    
    
    18,250,000
    
    
    
    18,250,000
    
    
    
    (1,528,288
    )
    
    
    34,971,712Cash contributions
    
    
    6,000,000
    
    
    
    6,000,000
    
    
    
    
    
    
    
    12,000,000Net loss
    
    
    
    
    
    
    
    
    
    
    (8,317,068
    )
    
    
    (8,317,068
    )Balance, September 30, 2009
    
    
    24,250,000
    
    
    
    24,250,000
    
    
    
    (9,845,356
    )
    
    
    38,654,644Cash contributions
    
    
    10,000,000
    
    
    
    10,000,000
    
    
    
    
    
    
    
    20,000,000Net loss
    
    
    
    
    
    
    
    
    
    
    (11,139,886
    )
    
    
    (11,139,886
    )Balance, September 30, 2010
    
    $
    34,250,000
    
    
    $
    34,250,000
    
    
    $
    (20,985,242
    )
    
    $
    47,514,758
   4




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DYNAMIC FUELS, LLC
(A Development Stage Company)
 STATEMENTS OF CASH FLOWS
 Period fromJune 22, 2007,Year ended
    
    
    Year ended
    
    
    Date of Inception,September 30,
    
    
    September 30,
    
    
    to September 30,2010
    
    
    2009
    
    
    2010Cash Flows from Operating ActivitiesNet loss
    
    $
    (11,139,886
    )
    
    $
    (8,317,068
    )
    
    $
    (20,985,242
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    219,338
    
    
    
    57,426
    
    
    
    277,195Accretion of asset retirement obligation
    
    
    4,297
    
    
    
    
    
    
    
    4,297Loss on disposition of property, plant and
equipment
    
    
    29,673
    
    
    
    
    
    
    
    29,673Mark-to-market interest rate swap in excess
of cash collateral
    
    
    (753,480
    )
    
    
    2,088,663
    
    
    
    1,335,183Changes in:Other receivables
    
    
    (701,422
    )
    
    
    16,523
    
    
    
    (701,422
    )Inventory
    
    
    (7,086,677
    )
    
    
    
    
    
    
    (7,086,677
    )Prepaid expenses and other
    
    
    (508,060
    )
    
    
    (367,319
    )
    
    
    (2,418,037
    )Accounts payable and accrued liabilities
    
    
    (9,988,887
    )
    
    
    (10,158,255
    )
    
    
    2,124,300Due to related parties
    
    
    2,418,259
    
    
    
    309,315
    
    
    
    3,276,152Net cash used in operating activities
    
    
    (27,506,845
    )
    
    
    (16,370,715
    )
    
    
    (24,144,578
    )Cash Flows from Investing ActivitiesPayments for the purchase of property, plant and
equipment
    
    
    (64,832,181
    )
    
    
    (45,680,626
    )
    
    
    (141,256,229
    )Proceeds from asset sale
    
    
    270,118
    
    
    
    
    
    
    
    270,118Change in restricted cash
    
    
    42,659,176
    
    
    
    (42,775,005
    )
    
    
    (115,829
    )Net cash used in investing activities
    
    
    (21,902,887
    )
    
    
    (88,455,631
    )
    
    
    (141,101,940
    )Cash Flows from Financing ActivitiesProceeds from sale of tax-exempt bonds
    
    
    
    
    
    
    100,000,000
    
    
    
    100,000,000Proceeds from capital contributions
    
    
    20,000,000
    
    
    
    12,000,000
    
    
    
    68,500,000Debt issuance costs
    
    
    (907,244
    )
    
    
    (341,500
    )
    
    
    (1,248,744
    )Net cash provided by financing activities
    
    
    19,092,756
    
    
    
    111,658,500
    
    
    
    167,251,256Net change in cash
    
    
    (30,316,976
    )
    
    
    6,832,154
    
    
    
    2,004,738Cash, beginning of year
    
    
    32,321,714
    
    
    
    25,489,560
    
    
    
    Cash, end of year
    
    $
    2,004,738
    
    
    $
    32,321,714
    
    
    $
    2,004,738Supplemental Disclosure of Cash Flow InformationNoncash investing and financing activities:Purchase of property, plant and equipment on
account
    
    $
    3,592,227
    
    
    $
    10,850,165
    
    
    $
    3,592,227
   5




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DYNAMIC FUELS, LLC
(A Development Stage Company)
 NOTES TO FINANCIAL STATEMENTS
 September 30, 2010 and 2009
 Note 1  Summary of Significant Accounting Policies
 Nature of operations
   Reclassifications
  Cash
  Restricted cash
  Other receivables
   6




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Inventory
   Property, plant and equipment
  Interest
  Other assets
  Asset retirement obligation
  Income taxes
   7




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Use of estimates
  Fair value of financial instruments
  Note 2  Related-Party Transactions
  Note 3  Property, Plant and Equipment
  2010
    
    
    2009Plant construction in progress
    
    $
    142,636,089
    
    
    $
    76,038,984Computer hardware and software
    
    
    1,013,203
    
    
    
    314,237Furniture and automobile
    
    
    929,794
    
    
    
    87,259144,579,086
    
    
    
    76,440,480Accumulated depreciation
    
    
    177,851
    
    
    
    8,185Property, plant and equipment, net
    
    $
    144,401,235
    
    
    $
    76,432,295
   8




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Note 4  Notes Payable
  Note 5  Commitments and Contingencies
   Year
    
    Amount2011
    
    $
    2,580,0002012
    
    
    3,510,0002013
    
    
    3,510,0002014
    
    
    3,510,0002015
    
    
    3,510,000Thereafter
    
    
    32,250,000Total
    
    $
    48,870,000
   9




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Note 6  Members Equity
   Note 7  Derivative Financial Instruments
    Note 8  Fair Value Measurements
  Level 1 
    
    Unadjusted quoted prices available in active markets for the
identical assets or liabilities at the measurement date.
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Level 2 
    
    Other significant observable inputs available at the
measurement date, including quoted prices for similar securities.Level 3 
    
    Unobservable inputs that cannot be corroborated by observable
market data and reflect the use of significant management
judgment. These values are generally determined using pricing
models for which the assumptions utilize managements estimates
of market participant assumptions.
     September 30,Valuation inputs
    
    2010
    
    
    2009Level 1  Quoted prices
    
    $
    
    
    
    $
    Level 2  Other significant observable inputs
    
    
    1,495,183
    
    
    
    2,089,000Level 3  Significant unobservable inputs
    
    
    
    
    
    
    Total
    
    $
    1,495,183
    
    
    $
    2,089,000
 Note 9  Subsequent Events
   11